The ‘Missed Opportunity’ in Israeli-Turkish Trade Relations

Anyone following the Middle East via headlines in mainstream media would know that diplomatic and political relations between Israel and Turkey have ruptured in recent years. It would therefore seem safe to assume that the economic and commercial links that once formed a central element of a generally close relationship between the two countries had shriveled under the impact of the diplomatic freeze.

But data shows that trade is actually surging in both directions. The specific example of Israel-Turkish trade ties serves to illustrate two important general conclusions about the Middle East, experts say: First, headlines are a bad tool for trying to understand developments and, second, things are far more complex and multi-faceted than they appear.

The volume of Israel-Turkish trade has grown significantly in the four years since the Mavi Marmara incident — in which Israeli naval commandos stormed a ship sent by a Turkish pro-Palestinian NGO to try and break Israel’s blockade of the Gaza Strip, resulting in the deaths of 10 Turkish nationals (10 of the commandos were wounded).

Does this mean that the subsequent downgrading in diplomatic relations implemented by Turkey, and the hostile attitude adopted by the Turkish government — in particular, by Prime Minister (now President) Recep Tayyip Erdogan — was ignored by Turkish businessmen and consumers, or by their Israeli counterparts? Unlikely, observers note, given the subsequent voluntary boycotts of Turkish vacation resorts by Israelis, and of Israeli goods by Turkish shoppers.

“Israel and Turkey are the only countries in the region that are committed to free trade and market-driven economies.” –Guven Sak

What, then, is happening? “Israel and Turkey are the only countries in the region that are committed to free trade and market-driven economies,”says Guven Sak, managing director of TEPAV, the Economic Policy Research Foundation of Turkey. “Everywhere else, businesses have to make sure they are on good terms with the government, and they tend to look to their governments for direction.”

New Government, New Climate

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In the latter part of the 20th century, Turkey was staunchly secular, in the tradition of the Turkish Republic’s founder, Kemal Ataturk. Turkey was a firm ally of the U.S., a member of NATO, and in the process of moving from an under-developed economy and largely rural society to an industrialized and urbanized socioeconomic structure.

Most of these features — as well as common enemies (notably Syria and Iran) — were shared by Israel, and were a more than sufficient basis to make the countries natural allies. By the 1990s, Israel was developing its technological prowess and Turkey was rapidly industrializing, while their military establishments were forging close links that encompassed everything from joint exercises to Israeli companies upgrading Turkish planes with advanced avionics systems — all with American encouragement. Not only trade, but significant investment deals flowed in both directions: Turkish contractors played a leading role in constructing the new terminal at Israel’s Ben Gurion International Airport, while Bank Hapoalim — Israel’s largest bank — acquired a controlling stake in Turkey’s Bank Positif, and Israeli industrialist Stef Wertheimer, founder of Iscar Metalworking, established an industrial park in Turkey along the lines of his highly successful Tefen Park in the Galilee.

“The AKP set goals for Turkey’s foreign policy that, at least implicitly, meant that the alliance with Israel would be abandoned.” –Menashe Carmon

The Turkish election victory, in 2002, of the Islamist-oriented Justice and Development Party (known at the AKP) led by Erdogan signaled a change in Turkey’s political and cultural orientation — and hence in its relationship with Israel. “The AKP set goals for Turkey’s foreign policy that, at least implicitly, meant that the alliance with Israel would be abandoned,”notes Menashe Carmon, chairman of the Israel-Turkey Business Council.

After his second election victory in 2007, and especially following Israel’s 22-day offensive in the Gaza Strip in December 2008-January 2009 and the Mavi Marmara incident in May 2010, Erdogan became increasingly outspoken against Israel. His comments convinced many Israelis that he was not merely pursuing Turkish interests as he saw them, but was also anti-Semitic — thereby leading to mass cancellation of Israeli vacation bookings to Antalya, a highly popular Turkish resort.

Yet, while diplomatic ties were largely cut and the opposing leaderships exchanged barbs, the volume of trade in goods between the two countries continued to expand. To cite the most recent data, Israeli imports from Turkey rose to $2.35 billion in 2013, an increase of 13% over the previous year. It then climbed another 16% in the first seven months of 2014, compared to the same period of 2013. And this was at a time when total Israeli imports actually fell, as did its overall imports from the Organisation for Economic Co-operation and Development (OECD) —of which both Israel and Turkey are members.

Israeli goods imports from Turkey are varied, ranging from food and raw materials to machinery and autos. There is no dominant sector, although base metals and metal goods comprise over 20% of the total. The picture for exports is quite different: These surged by 77% in 2013, to more than $2.5 billion, and rose by 21% in January-July 2014. But the increase has been overwhelmingly concentrated in the chemicals sector, primarily in the petrochemicals industry.

A Wider Perspective

Despite the growth of Israel-Turkish trade in a period of unprecedented inter-government hostility, the positive data need to be viewed in a wider perspective, observers say.“The growth in Israel’s trade with Turkey has lagged far behind that of most other countries in the region,”notes Dan Catarivas, head of the Israel Manufacturers Association’s foreign trade and international relations division. “In other words, Israel has been a very minor beneficiary of the tremendous growth in the Turkish economy over the past decade and more.”

Catarivas adds that Turkey has emerged as an industrial powerhouse, with large investments by many major multinationals, especially from Europe. These companies also effectively dictate much of the trade patterns of the countries in which they operate. For example, an auto manufacturer may notify its Israeli importer that it is to buy specific models from its Turkish plant — and, in that case, neither Israel nor Turkey has much say in the matter.

“Israel has been a very minor beneficiary of the tremendous growth in the Turkish economy over the past decade and more.” –Dan Catarivas

There are also new developments in the energy sector that could impact trade. Israel’s large offshore natural gas fields are being developed, and Turkey, with its burgeoning energy requirements, is a logical customer. Turkish companies are willing and eager to lay the pipelines and provide the other infrastructure necessary to bring Israeli gas to the Turkish market.

“The growth in the volume of trade reflects, at least in part, the upgrading of the Turkish economy. Whereas in the past, Israel would buy textiles and other cheaper products from Turkey, today it imports far more expensive items, such as cars and machinery,” Carmon says. He adds that although “the two countries’business communities generally ignored the politicians, the actual increase in trade was quite moderate and could, under other circumstances, have been much greater.”

What could have happened — and maybe still will happen, if the political leadership changes and brings a change of attitude? “The two countries’economies are fundamentally complementary,”Sak notes. “Turkish industry requires a technological upgrade, which it could obtain via investments in and know-how from Israeli companies.” Furthermore, he adds, “Israel has excellent access to the U.S. market, which Turkey needs. And Israel needs to obtain access to the rapidly growing markets in this region and in the Caucasus and Central Asia — where Turkey is very well-situated. The opportunities for working together to obtain mutual benefits are very clear.”